Was Soviet military power at least equal to that of the United States, as the numbers of personnel and hardware suggested, or was it one-quarter the size, as the budget figures implied? There was a fourfold discrepancy.
The Soviet media argued that the Western estimates of their military power were overstated. On one argument, they maintained, an impartial observer would discount the numbers. The Soviet Union, unlike the United States, had to defend long continental borders. In many aspects of military technology, moreover, the Soviet Union was at a qualitative disadvantage that mere numbers could not capture. On another argument, the Western estimates of Soviet military power were lies intended to stoke fear. All such arguments were weakened, however, by the fact that the Soviet government presented no credible alternative figures.
It might be asked why the Soviet military budget mattered to anyone. After all, Soviet defense rubles were just a means to an end, an intermediate step to a greater goal, which was the production of Soviet military capabilities. Evidently it was possible to build capabilities without a transparent budget. Regardless of how the rubles were found to pay for them, Soviet missiles armed with atomic warheads could be deployed in silos and submarines. The Soviet Army could wargame battles with NATO forces on the Central European plain; it could invade Hungary, Czechoslovakia, and Afghanistan. All these capabilities could be evaluated independently of the budgetary channels that paid for them. Why then did Soviet defense costs matter?
The importance of the question can be seen from both sides of the Iron Curtain. While they largely understood Soviet military capabilities, Western leaders also wanted to understand Soviet intentions. Soviet military power rested on an economic foundation. The demands it placed on the economy could be used to measure the willingness of Soviet leaders to sacrifice other goals—for example, the modernization of the civilian economy and the living standards of the people—for the sake of military power. Thus, the size and rate of change of the military budget would have provided the Western powers with information about Soviet goals and intentions that could not be obtained just by counting troops and missiles. For Western leaders, these concerns became especially salient in the 1960s, as American defense accountants came to rely increasingly on measures of cost-effectiveness in deciding how to allocate defense dollars.[381]
Western leaders also wanted to understand whether the Soviet defense burden was sustainable. Consider two ratios. Apparently, the size of the Soviet military establishment relative to that of the United States was roughly 1 to 1. But the size of the Soviet economy relative to that of the United States was perhaps 0.4 to 1. Per unit of military capability, the relative sacrifice of Soviet civilian needs, the loss of provision for present and future living standards, must have been several times greater. Could such a situation continue indefinitely? This depended on the trend of the share of overall production taken up by military demands. If the Soviet defense share was stable, it was sustainable. If the defense share was rising, it could not rise indefinitely.[382] Stability was easier to maintain if the Soviet economy kept pace with American growth. If it was falling behind, a point might come when Soviet civilians would resist continually increasing hardships.
If the military burden on the Soviet economy grew indefinitely, something must give—but what? Conceivably, the Soviet system itself might give way. Writing about the rise and fall of great powers, the historian Paul Kennedy concluded that overambitious military commitments and the associated burdens are precursors of economic decline.[383] That was one possibility—from the Western perspective, a hopeful one. A greater worry was that a rising defense burden on the Soviet economy, being unsustainable in the long run, could imply preparation for imminent war.
If Western leaders asked themselves these questions, they were also excellent questions for the Soviet leaders, who should have been capable of providing clear answers, at least to each other in private, if not to the public. But they could not do this without a reliable measure of the defense burden on the economy.
Soviet leaders had further reasons to need to know the size of their own defense budget. Defense outlays should have been an important control variable for economic management. This might not be obvious in the context of a textbook stereotype of the Soviet planned economy. According to the stereotype, it was the Soviet planning system that allocated supplies of materials such as steel, fuel, and machinery to their final uses through the planning. Money was supposed to follow the plan. It was not clear what role was left for demand factors such as budgetary assignments in rubles. But the stereotype is misleading: the real working of the Soviet economy was different.[384]
Most importantly, the Soviet planners were much less all-powerful than the stereotype supposed. Centralized plans were not detailed enough to link particular products to particular users, and many products did not have a deterministic use. In practice, the final allocation of commodities was closed on the demand side. Aggregate demand was dominated by three monetary aggregates, all of them supposedly controlled by the government: the defense budget, the investment budget, and the annual bill for wages, pensions, and other benefits, from which households made their consumption decisions.
The decisive importance of aggregate demand is supported by the observation that Stalin and his immediate associates gave much more time and thought to fixing the amount of money for the annual budgets for civilian construction and military procurements than to cursory scrutiny and approval of the annual “control figures” for material supply plans. Seen in this light, Soviet money was not just a token; it was valued for its purchasing power. While the ruble’s purchasing power was much less flexible than money in a market economy, it was still decisive.
A related mistake of the textbook stereotype of the Soviet economy is to suppose that prices were fixed, and all decisions were made in quantities of output. In reality, most Soviet supply plans were denominated not in tons or physical units (as the stereotype claimed) but in rubles. To translate plan rubles into quantities required prices. The prices were supposedly fixed from above, but in practice they could be pushed up by suppliers. The result was a tendency to inflation, sometimes hidden, sometimes open. Prices could be pushed up more easily in some sectors than others; complex products like machinery and construction were particularly vulnerable. As a result, an increased budget for capital construction or defense might not result in more real investment or more real military activity. It might just lead to more inflation. In the case of defense, enlarged budgets were not always spent, perhaps partly because of this. Here was another reason for the Soviet government to keep a watchful eye on the aggregate of defense outlays.
To summarize, everyone had powerful reasons to want to know the Soviet government’s military budget. How important was Soviet military power, and what were the Soviet rulers willing to sacrifice to get it? What did the costs of military power imply for the present and future of the Soviet economy? Could the economy sustain Soviet defense costs, not just today, but tomorrow?
Western observers found themselves starved of the clear, credible official information that might have supported the answers they sought. In that situation, they turned to alternative sources.
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The following discussion is based on Gregory and Harrison, “Allocation under Dictatorship,” 744-47.